Five Dangers of Church Designated Funds

If there is a topic that reaches me with frequency, it is the topic of church members designating funds. And the common theme is one of regret. The pastor or other church leader wishes the door of designated funds had never been opened.

For clarity, I am not speaking of designated funds approved by the church body as a whole. Many churches have excellent stewardship approaches that encourage members to give to a building fund or a mission fund, as two examples.

Instead, I am referring to those designated funds given to the church by a single or few members with guidelines not approved by the church as a whole. For example, one pastor shared with me about funds the church received with the strict stipulation that the church had to use them to buy stained-glass windows. The only problem is the church did not want to purchase stained-glass windows.

In another example, a pastor shared with me about a member who would only give designated funds to the youth ministry. The problem is that the youth ministry already had funds in the church budget, but these designated funds gave the youth ministry disproportionate funding compared to the other ministries. To make matters worse, the youth ministry was encouraging the donor to make the designated contribution.

So designated funds are not an intrinsic problem themselves. But they can become a dangerous precedent for several reasons. Here are five of them:

  1. They circumvent the will and the plan of the church as a whole. Designated givers are basically saying they don’t like the unified budget of the church, so they are going rogue and dictating their preferences over the church as a whole. A church with numerous designated funds can find it has a budget with no teeth.
  2. They create division in the church. Each designated giver is doing things his way or her way. Others tend to resent the imposition of will the person demands. Disunity is thus a natural consequence.
  3. They create an environment where advocates of a particular ministry or need of the church solicit designated funds. The youth minister in the example above spent an incredible amount of time and energy currying the favor of designated giving to the youth fund. Instead of ministering to the students, he was spending as much time becoming a fundraiser.
  4. They often come with stipulations that are difficult or impossible to comply. I recently heard from a pastor whose church had a designated endowment fund. The donor to that fund, however, established investment guidelines many years ago that required certain investment instruments that no longer exist.
  5. They often hurt the budget giving of the church. The person who designates to the youth fund is likely taking dollars that would have normally gone to the budget as a whole. In many cases, each designated dollar is thus a dollar deducted from the overall budget.

I encourage church leaders to develop clear guidelines for dealing with designated funds. It will make saying no to a potential donor much easier. And it will also send a clear message that the church seeks to move forward in stewardship unity, rather than different members deciding what their own financial preferences and whims are.

Posted on February 19, 2018

With nearly 40 years of ministry experience, Thom Rainer has spent a lifetime committed to the growth and health of local churches across North America.
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  • Greg Noble says on

    We have worked hard not to generate or promote special funds other that capital gains campaigns. We have gone as far as return checks that are designated for a special fund and explain that we cannot except designated funds. “If you would like, we can add to the general fund”

  • Another issue to be considered (Admittedly I have not had time to read this entire thread) – If the church does not ‘approve’ of said designations, they can return them. Years ago, I heard of a church receiving a sizable gift which was ‘thought’ to be ‘no strings attached’. After the planning had been done, the donor sent word that his/her wishes were for the money to be spent on an expensive instrument. Because they had no need of such an instrument, the pastor went and spoke with the donor about the monetary gift. When the donor was unchanging about the instrument, the pastor graciously returned the gift because they could not use it the way the donor wanted.
    It seems that the IRS regs are clear about designated moneys and that they church must adopt an ‘avenue’ or ‘open a stream’ for funds to be received. If not, those funds cannot be accepted by the church.
    We do not have the expressed legal right to ‘designate at will’, it must be (at least according to the IRS) approved by the Church.

    • Christina Thom says on

      I designate funds all the time. I also pledge. In a diocese where churches are closing we are growing. Our youth are a priority. They get greater funding because we are taking a leap of faith. The numbers are like this. We put money for youth ministry today. The young person stays with the church and becomes a pledging member. The priest at the church I grew up in said “Go away start a family then come back.” That church is closed.

  • Opening a can of worms here…

    I’ve also seen this same problem with a “Faith Promise” missions program. People were annually guilted into giving to this program which supported a lot of good missionaries and good people (many of them relatives to church members). A high goal was set (about $350K annually). If pledges didn’t meet the goal, the guilt was piled on. In the meantime, the operating fund for the local church was about $650K annually. We were a church of about 500 weekly attendance and had a staff of five pastors with five other people in administrative support. We were stretched at times. For the eight years that I served that church, I was never given retirement as a pastor because “we couldn’t afford it.” While at the same time, all of the missionaries that we supported through their organizations did have retirement plans.

    I suppose I carry a bit of baggage. I live with a smaller “nest egg” and will have to work many more years before I can “switch gears.” But that’s history. The biggest problem is that the people did not understand that “mission” was all-encompassing, uniting local and distant. It was heroic to give money to friends and family on the field and make sure they were amply supported (often w/o accountability for effectiveness) but when it came to supporting those who were serving you and with you, well…the romance was gone.

    Fortunately, after I left, the leadership of the church finally repented and have provided retirement funds for pastoral staff and I believe they now have a unified budget. I have no problems with a church designating 30% of their financial resources to foreign missions but I believe it should come with a full understanding of mission and one “offering.”

    • Christina Thom says on

      My denomination set up the retirement plans on a national level. If you have spent your life working for the church you get a retirement plan. Whether you work in East L A or Beverly Hills. Beverly may have an additional retirement plan but each have a plan. The national retirement plan just turned 100.

  • Alex Clayton says on

    Another approach is when someone designates money for a particular ministry that is in the budget, send a thank you note to them for supporting that budget item. For example, if someone gives $5,000 to the Youth ministry and there is $5,000 budgeted for the Youth Ministry then thank them for supporting the Youth Ministry plan for the year. THE YOUTH MINISTRY DOES NOT GET AN ADDITIONAL $5,000. The same with any ministry. In case of emergency needs the leadership can increase that areas budget to accommodate the need. Any money that is given that is above the budgeted mission, is up to the leadership’s discretion.

    • Christina Thom says on

      My husband had a friend that worked in an AIDES ministry is a very large church in our area. He had worked hard to get a grant . He waiting and asked the donor the status of the grant. It had been sent. He then went to the church bookkeeper. The bookkeeper told him the money had just been put in the general fund. He then asked is the usual way of handling it No, only when we have a short fall. The church has a 3 million dollar annual budget.

  • Mark A. Owes says on

    I agree 110% that the whole congregation should be in agreement that it is God’s will for the body to have a designated fund. Additionally, I have witnessed the scenario where a designated fund became a ‘holy of holies’. When the church ran into extreme circumstances and this ‘fund’ clearly would never be used for it’s designation, it begat disunity in the body and the church has nearly died. I say, if it’s not going to be used for what it was given for, give it away! It’ll become a millstone around the church’s neck.

  • I understand all of these concerns and potential abuses. Our 95 year old church has benefited from designated funds for as long as I can remember. I’ve been a member for 62 years. We have been taught, and frequently reminded, that the tithe comes first and is unrestricted. Designated gifts come after that. Designated gifts are a big part of our church. They are used for numerous purposes. In some cases people will increase their giving beyond the tithe when they get excited or motivated about a specific need or project. These are often one time needs or projects that won’t make it to the budget planning process. In our church these designated giving projects usually originate with the staff. Our congregation is a middle income demographic and our budget is tight. Giving above the tithe is an essential part of our church life. I personally think managing designated giving is a leadership matter and a stewardship training matter.

    Again, I do understand the difference between the examples given and what I experience in my church.

    • Every church is different. One of our issues is that “business meetings”, including budget meetings, are attended by about 1% of our congregation, and does not represent the membership. The younger generations don’t attend. They expect, and trust, the Pastor and staff to make decisions.

  • Our offering envelopes have this annotation on the bottom: “We thank you for you financial gift. The church reserves the right to use funds in the areas of ministry most needed.” Or something close to that. While we always try and fulfill the desire of the giver, we all know, there are times the budget falls short, and we have to use other funds to pay basic necessities. We “pay back” whatever fund we borrow from, and when things are fluid, we spend the money on what it was designated for. We had something happen two weeks ago – our computer locked up twice during worship, which gave me the opportunity to ask one of our tech guys in front of the congregation, “How much for a new computer?” He said, “About $800.” I said, “There you have it. If you have an extra $800 just lying around, waiting to be spent, put it in an offering envelope and mark it ‘computer,’ and we’ll take care of that for you.” As I was greeting people while they were leaving, a man shook my hand, slipping me a check for $800 and saying, “We want to take care of that computer problem.” We received another $300 in the offering. We now have a new computer!

  • What about when your church hasn’t sat down and completed an annual budget in years? I’ve been a member of our church 3 years and it’s never been discussed. We still have funds sitting in accounts for things we don’t even don’t do anymore,, while activities That are active are underfunded. My husband and I designate extra funds monthly to our Baptist Association because our church itself doesn’t tithe to it as we should. Yes, I guess I am not unified in doing so, but our church also doesn’t have a updated budget (I’d say it probably been 10 years since it’s been visited, if I had to guess). So we just aren’t sure what to do in those cases? P.S. this budget problem was actually brought up in our January meeting and will hopefully be addressed soon.

  • Brian Hill says on

    Perhaps one suggestion might be to explain to the congregation that the annual budgeting process is the time when the congregation decides/votes (if that is the case) on the annual budget; and that this is the time each year when the church, as a whole, “designates” how they are going to spend the money that the Lord brings in to the church.

  • Having worked as a development officer in higher education, a clearly defined giving policy is vital. Without it, churches may accept gifts that penalize the church; i.e. accepting a gift of land that may have dirty soil; hobby collectables that offer little value to the mission of the church; accepting gifts of stock without a defined purpose for it (sale or keep); etc.

  • Rev. Sophia Snyder says on

    It is a no brainer. It is God’s money in the first place and when a person has a certain vision or desire they should check with appropriate leadership about it. And if there is strings attached then it is better not to give it then to cause division or a spirit of control or even manipulation. I like what I saw on an envelope from a church in PA. We reserve the right to use the funds will most needed for your gift. This is clear and out in the open and if the cheerful giver gives there is no problem. However, if there is another agenda that will be clear also.

  • I appreciate your perspective and agree with the outcomes you present. I also feel like many churches would do well to get back “On Message” and to stay “On Message”: The Gospel Message, that is. Preaching, Being and Doing that Message, would perhaps make the budgetary issues less pronounced or less contentious in the “monthly business meeting”?

    (Spoken from many past experiences)